Under Australian Consumer Law, small businesses can now challenge unfair terms in standard form contracts.
These new legal protections – which previously applied only to consumer contracts – came into effect on 12 November 2016. If any term in a standard form contract (defined below) is found to be “unfair”, that term would be rendered invalid and have no force. When contracting on behalf of the University, it is important that you do not engage in unfair contracting practices.
What types of contracts are caught?
- contracts presented to the other party as “standard” and not negotiable (“standard form contract”)
- with a party that has <20 employees (“small business”), and
- if the contract price that can be calculated upfront is <$300,000 (or <$1M if the contract is over 12 months)
What makes a term ‘unfair’?
A term of a contract may be unfair if it has the effect of significantly diminishing the rights or interests of the small business, and is not reasonably necessary to protect the legitimate interests of the University.
Examples of ‘unfair’ effects include where a contract;
- only permits the University to vary, renew, terminate, avoid or limit performance of the contract
- only penalises the small business for a breach or termination of the contract
- only permits the University to assign the contract
- limits the small business’ right to sue the University
- requires the small business to pay excessive penalties for default which do not reflect the University’s actual loss or damage
- requires the small business to assume liability for risks it cannot control.
Do’s and Don’ts
- Do ensure you use the latest version of a Legal & Risk Branch contract template – check the Standard Form Contract website or ask Legal & Risk Branch.
- Do contact Legal & Risk Branch if you are using a standard form contract that has not been subject to legal review within the last 6 months.
- Do Not include contract clauses that negatively impact the other party and are not reasonably necessary to protect the University’s interests.
- Do Not include contract clauses that are difficult to understand.
Further information about Unfair Contracts and Trade Practices can be found in the Competition & Consumer Law Compliance Manual and the Competition and Consumer Act 2010 (Cth) 101 Summary.
Please contact Legal and Risk Branch for further information.